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Official Publication of the AH&LAMon, 19 Mar 2018 14:15:30 +0000en-UShourly1https://wordpress.org/?v=4.9.4Survey Reveals Growing Trust of Online Travel Agencieshttp://lodgingmagazine.com/survey-reveals-growing-trust-of-online-travel-agencies/
http://lodgingmagazine.com/survey-reveals-growing-trust-of-online-travel-agencies/#respondMon, 28 Sep 2015 19:36:16 +0000http://lodgingmagazine.com/?p=20884Americans are trusting online travel agencies more than ever, according to a new survey from The Travel Technology Association. The study found that nearly seven in 10 Americans see booking on online travel company platforms as convenient and safe. The majority of U.S. travelers surveyed choose online travel companies when searching for hotels, and 55 percent of American consumers believe that innovation developed by online travel companies is vital to the travel economy. The study ...

The study found that nearly seven in 10 Americans see booking on online travel company platforms as convenient and safe. The majority of U.S. travelers surveyed choose online travel companies when searching for hotels, and 55 percent of American consumers believe that innovation developed by online travel companies is vital to the travel economy. The study also discovered that 43 percent of the subjects said they book reservations through online travel agencies, while 40 percent book direct on hotel platforms.

“By offering side-by-side comparisons, access to the growing array of travel options and competitive prices, online travel companies have empowered travelers to search, compare, and book from the palm of their hand from anywhere in the world,” said Steve Shur, president of the Travel Technology Association. “It is clear the American public not only relies on the convenience of shopping across multiple travel brands in a single place, but they continue to trust online travel companies with their vacation and business travel itineraries,” he said.

]]>http://lodgingmagazine.com/survey-reveals-growing-trust-of-online-travel-agencies/feed/0Room for Changehttp://lodgingmagazine.com/room-for-change/
http://lodgingmagazine.com/room-for-change/#respondWed, 02 Jan 2013 15:40:41 +0000http://47d21308-6d9a-40f2-b6bc-a7a47f3ce314Deepesh Kholwadwala, CEO of Sun Capital Hospitality Management in Albuquerque, speaks for many hotel owners when he says online travel agencies (OTAs) place a high cost burden on hotels. “The online travel agency business is a smart model, but a 23 percent commission is too high for the value these companies provide hotel owners,” he says. “OTAs are necessary for exposure, but there needs to be a better arrangement with Expedia and other OTAs so ...

]]>Deepesh Kholwadwala, CEO of Sun Capital Hospitality Management in Albuquerque, speaks for many hotel owners when he says online travel agencies (OTAs) place a high cost burden on hotels. “The online travel agency business is a smart model, but a 23 percent commission is too high for the value these companies provide hotel owners,” he says. “OTAs are necessary for exposure, but there needs to be a better arrangement with Expedia and other OTAs so that owners aren’t financially squeezed.

“For example,” Kholwadwala continues, “hotels still pay reservation and marketing fees to the franchisor regardless of booking source. To combat OTAs, many major brands launched online performance advertising to direct consumers to brand.com, but that comes with its own added cost from the franchisor. It’s an OTA vs. hotel brand cold war at the owner’s expense. With each passing year, a new layer of fees and commissions becomes part of our costs with neutral value added.”

“While it would be ideal for 100 percent of bookings to come through our direct channels, it’s unrealistic,” says Linda Kent, senior vice president of electronic distribution for Wyndham Hotel Group. “As such, hotels need to find the right balance in their channel mix to ensure that they are capturing as much business as possible. OTAs can contribute to that mix, which is why we work to maintain positive relationships with them and understand their evolving product offerings.”

With a better economy, the growing appeal of the brands’ own websites, and pressures on OTAs emerging from competition to them, it may be time for hoteliers to redirect the relationship in their favor. In the tough times of years past, when hotels were desperate to fill rooms, they handed over a large amount of inventory to OTAs, who were there to help. Now, as hotels regain market share in the online distribution channel, they are ready to negotiate and forge long-term partnerships with OTAs that are more balanced and mutually beneficial. The many changes taking place in the online booking channel present plenty of opportunities for hotels and OTAs to redefine the way they work together. After all, what benefits one side has solid benefits for the other.

Expedia’s Big Move
Expedia announced in the spring of 2012 that it would introduce an agency, or retail, model called Expedia Traveler Preference (ETP) that enables customers to pay on checkout rather than at the time a room is booked. While the pay now, or merchant model, has long been the norm for OTAs, it has been a source of contention for hotel operators. The complaints revolve around rate parity and high commissions that have hovered around 25 percent for independents and 18 percent for major brands. Well-publicized feuds between mega-brands like Choice in recent years resulted in that brand’s hotels not even being displayed on Expedia.

Patrick Pacious, executive vice president of global strategy and operations for Choice, says the company has had “three good years” with Expedia since their dispute and “both sides are in a good place now.” Pacious says Expedia has driven a small percentage of Choice’s bookings but with Choice’s move into the upscale sector with Cambria Suites, it will become more important. “We are watching how other companies work with ETP,” he says. “Our job is to keep costs as low as possible for franchisees and we will be talking to Expedia about how this is going to work. We’ll take on the credit card costs if the commissions are at an appropriate level.”

ETP is similar to what Expedia’s competitor Priceline offers via its subsidiary, Booking.com, the Europe-based OTA that Priceline acquired several years ago. Travelers reserve a room with a no-fee cancellation policy and then pay the hotel upon arrival. According to Max Starkov, CEO of the hotel Internet marketing and strategy consulting firm HeBS Digital, “Orbitz and Travelocity will have to follow Expedia toward the agency model.” Regarding that possibility, Tom Underwood, group vice president of hotel strategy at Orbitz Worldwide, says, “We do see opportunities to grow our relationships with select hotels that are wary of some competitor actions.”

A number of chains have signed on to ETP, including Marriott International, La Quinta, and many independent hotels. Others are still waiting on the sidelines to see how the new model affects their bottom line. Michelle Russo, president of hotelAVE (Hotel Asset Value Enhancement, Inc.) contends that the shift to the agency model will result in a combined loss to owners of $131 million. The losses stem from hotels paying management, brand, marketing, and credit card fees on the retail rather than the wholesale rate when travelers pay at a property rather than up front to the OTA.

While Russo notes that Expedia projects greater demand from countries that are used to the pay later model, she adds, “there is also the risk that demand currently going to less costly channels like brand websites will move over to Expedia now that customers can pay later.” In general, she says that owners like what Expedia does. “They appreciate the company’s amazing technology, and its ability to do targeted campaigns. The issue is how the agency model will hurt hotel owners’ bottom lines.” To address this Russo recommends Expedia reduce the commission hotels pay to OTAs to 10 percent, the same rate a travel agency receives. “A second option would be for brands or managers to rebate their incremental revenues to owners,” she says.

Expedia was surprised by some of the reactions of owners to ETP and says it wants to do the right thing (see “Clearing the Air,” page 37). The company has already reduced the commissions hotels have to pay when the agency model is employed.
Wyndham’s Kent says it’s still too early to determine how ETP will affect the OTA outlook. “We welcome discussions around new opportunities and models that can drive additional value to our franchisees and we’re looking forward to understanding from Expedia how this new program can do just that.”

The Messy Details
“I focus on the net ADR rather than the whole ADR,” says Kholwadwala. “A $100 room sold by an OTA equals $77 net ADR. Previously, OTAs paid the transaction cost; now even that is being passed back to the hotels. Owner awareness of the OTA cost would be higher if the payment model was reversed, so that owners wrote a 23 percent check to the OTAs at the end of the month instead of them reimbursing us 77 percent.

“A better solution is needed if owners and OTAs are to become true partners,” Kholwadwala adds. He believes the solution is either a flat 10 percent commission paid at the end of each month or elimination of rate parity so free market can dictate where hotels sell their rooms and for how much. “Having a presence online is important, but I want the ability to sell my rooms for $105 on the expensive channels and $100 on a cheaper channel. This helps offset the OTA cost and hotels may end up providing additional room inventory. Rate parity really handcuffs us.”

Countering the questions raised in Russo’s analysis and by owners like Kholwadwala, Amy Severson, Expedia’s senior vice president of industry relations, says there were a number of flaws in Russo’s research. One prominent one was the assumption of a more significant switch to the agency model than Expedia projects. She says many travelers like the choice of the pay now option for several reasons. One is the confidence in holding a reservation that is already paid for. Other reasons include beneficial currency exchange and a desire to pay in advance for travel booked far in advance, such as a honeymoon. Severson expects a fair balance between pay now and pay later as ETP becomes better known in the marketplace.

Severson says negotiations will be ongoing as far as establishing the appropriate compensation for delivering bookings to a hotel.

Starkov contends that the entire hotel-OTA relationship comes down to supply and demand. “When the industry was booming in 2007-08, OTAs were left with little inventory except for corporate contracts. When times are bad, big brands are very good at enforcing rate parity and will punish franchisees severely who don’t go along. And managed brand properties also have their rates set centralized. Individual franchised hotels are not even allowed to talk to OTAs.”

However, Starkov notes that independent hotels are “easier pickings” for OTAs as far as discounting because they do not face brand sanctions. And independent hotels control a significant percentage of all hotel rooms—1.5 million rooms in the U.S. against 3.7 million chain-operated rooms, according to STR Global. Discounting by independents can, in turn, put pricing pressure on branded properties.

One hotel-OTA issue that may be eased by ETP involves the taxes paid on hotel rooms. “In the past when the OTAs were predominantly using the merchant model,” Starkov says, “they were claiming that they owe taxes only on the net portion of the retail rate. For example, a hotel gives Expedia a net rate of $75 a night. Expedia marks up the rate by 25 percent and comes up with their retail rate of $100. They charge the client 15 percent tax ($100 + 15 percent = $115). But then Expedia would argue that they owe the hotel a tax based only on the net rate of $75, which equals $11.25. Then Expedia would pocket the difference ($15 – $11.25 = $3.75). Now with the agency model this issue is non-existent since the client pays at the hotel and Expedia has to quote the correct tax.”

The Value of Online Booking
While their relationship is, by its nature, at least a partially competitive one, OTAs continue to compete for the affection of hotel partners. “We have 500 people in the field whose job it is to drive demand to our hotel partners,” Severson says. “That might mean promotions targeted to a specific need. It might also mean sharing market knowledge.” For instance, she offers the example of a recent Formula 1 car race in Austin that caused the hotels in San Antonio to book up quickly because of lower rates. Expedia was able to share that information with its Austin partners. The result is a faster response to rate demands.

“We are finding more ways to provide value to our hotel partners,” says Orbitz’s Underwood. “That means supplying hotels with demand characteristics specific to their properties, such as sharing the number of times they were viewed and property conversion rates.” He says hotel operators and managers appreciate this type of data because “it helps them better plan what the inventory might look like for a given season.”

“We provide a valuable additional vehicle for marketing and booking hotel rooms,” says Brian Ek, vice president of Priceline. “Our online and offline marketing brings customers in the door, where they can see what the hotels have to offer.” Priceline also provides the technology back-end of facilitating transactions and translates hotel listings into different languages. “Priceline provides a framework where hotel revenue mangers are free to use our services when they need us.”

More and more hotels are taking advantage of all of this information. “At Wyndham, we continue to get more granular in our understanding of OTA product offerings and markets,” Kent says, “which in turn allows us to better mine our opportunities for incremental revenue generation.”

It’s because of these capabilities that many hotel managers are, in fact, fans of OTAs. “I look at OTAs as a large marketing platform for hotels,” says Wanda Chan, the general manager of the Millennium Biltmore Hotel in Los Angeles. “Millennium isn’t as well known as brands like Hilton and Marriott and many of our guests find us on an OTA, then come to our brand site.”
Chan concedes that the 25 percent Expedia commission for its merchant model is hefty but adds, “They have the reach and influence over the public. The marketing exposure is massive—you can’t overestimate that.”

More Changes Coming
This roller coaster isn’t slowing down. The most recent game-changing development was Priceline’s acquisition of Kayak, the metasearch site that allows consumers to compare prices and content across many sites, including the OTAs. The aggregator drives a lot of traffic to Expedia’s site. “We provide a booking engine for Kayak,” Expedia’s Severson says. “People who book on Kayak are redirected to our affiliate network. At this point it’s business as usual but we’ll see what happens down the line.”

Metasearch, according to Starkov, “will always be a niche product.” He says Priceline bought Kayak “because they needed an online media entity where they can generate advertising revenues.” Starkov expects Priceline to expand Kayak, adding more destinations, content, and advertising capability. It also provides a forum for online reviews. “Booking.com is such a monster,” he says. “It has more reviews than TripAdvisor for many hotels. Priceline could add real-time reviews from Booking.com onto Kayak, incentivizing people to start looking to Kayak for reviews.”

But the distribution ground is shifting so quickly that the Priceline-Kayak news will undoubtedly be overshadowed in the not-too-distant future. TravelClick distribution data for North American hotels cites brand.com as the fastest growing booking source with 26.5 percent of transient demand share in the third quarter of 2012. OTAs accounted for the lowest share at 13.3 percent. Hotel brands have invested a lot of marketing dollars into promoting their own sites, so you can expect this trend to continue.

Google Hotel Finder is an increasingly sophisticated search tool that, though progressing more slowly than many had anticipated, looms large simply because of Google’s influence. “[The tool] is all about providing the most relevant information and the best user experiences,” Starkov says. “That’s what Google is all about. When it started, Google Hotel Finder would only provide a hotel’s name and location. Now it features availability and rates, and has become a good advertising vehicle for hotels seeking large exposure at a nominal cost.”

All major hotel brands have provided their inventory to Google Hotel Finder, according to Starkov, and the OTAs have done so as well. What is missing, again, he says, are independent hotels, because they have not been made aware of the potential of Google Hotel Finder.

When Google Hotel Finder was started, Starkov says, “the industry was up in arms, afraid they would become an OTA. But it’s not in their interest to do so. When Expedia handles an air ticket they receive nothing. Google receives revenue every time somebody clicks, so it makes much more sense for them.”

“We don’t see Google becoming an actual travel agent,” Severson says. “They’re trying to improve the way consumers find the product that matches them. They drive a lot of traffic to us and we consider them a partner as well as a competitor.”
Stay tuned. This is one channel where the programming is always changing.